Dear friends, welcome to our third quarter 2021 financial results webcast and conference call. This is Ebru speaking, Head of IR and Sustainability of Akbank. Thank you for joining us. I hope that you are all in good health. Today, I have with me, as usual, Türker, our CFO, and İlknur from our IR team. Before moving on to the bank's nine-month performance, I'd like to share some insights of the macro environment we are operating in. Despite the negative impacts of the ongoing pandemic, the economic activity in Turkey has been trending strong. We now expect full year growth to be around 9%. Looking at the demand components, domestic demand has slightly decelerated while external demand remains robust. Some macro-prudential measures have been implemented to secure a balanced demand composition in the economic activity, as well as curb financial stability risks in current account balance.
The ongoing supply-demand imbalances, as well as higher commodity prices and recent foreign currency developments, have increased risks on inflation. Looking forward, financial market conditions and currency developments will be essential for inflation outlook. On a positive note, current account balance is in an improving trend. We expect full year current account balance deficit to decline towards $20 billion below 3% of GDP. This will be achieved with potentially better trending tourism revenues, robust export growth, and lower gold imports. We expect overall export growth to outperform import growth for this year. On this slide, we have provided the heat map of many economic indicators. To mention a few, there has been strong industrial and service sector activity in the second half of this year. PMI manufacturing index, real sector confidence, capacity utilization, as well as most sectoral confidence indices have also improved.
As a result of the positive trend and activity, employment conditions have started to somewhat improve as well. Funding rates have started to ease with the 300 basis points rate cut over the last two months. TL deposit and loan rates have slightly declined as a result. Year-to-date, TL business banking loan growth has been moderate, but may increase with lower rates, while consumer loan growth has been relatively stronger. As for FX loan, demand remains to be weak. So far, funding costs and inflation have both evolved above our initial guidance. Though there is some improvement in the macro indicators due to high TL volatility, operating environment still remains challenging. In light of all these, let's move on to our bank's performance. First, I'd like to touch upon a few of the achievements.
Our nine-month reported net income was up by a stellar 67% year-on-year to TRY 7,344,000,000 , a record high. There were a number of contributors to this all-time high net income. First, TL loan growth has been robust. We had consecutive market share gains over the last year in relatively higher margin consumer segment. Second, our strategic positioning in CPI-linked portfolio worked as hedge in the higher than expected inflation backdrop. Third, our stronger than guided across-the-board fee performance underlines the success of our growth strategy and diversified business model. Finally, yet importantly, our net cost of credit evolution has fared much better than guided, thanks to our strong risk discipline through the cycle. As a result, we reached 14.9% ROE and 1.8% ROA with an 8.4x leverage.
While our quarterly ROE and ROA were 18.7% and 2.3%, respectively. Please note that on this slide we have shared a link to our cheat sheet, which provides the data used for our presentation. Let's move on to the drivers in more detail. First, the balance sheet. Our total assets were up by 23% year-to-date to almost TRY 590 billion. Net loans, which are 53% of our assets, were up by 19% in the same period to TRY 312 billion led by TL loan growth. As mentioned in the previous slide, we continue to grow and gain market share in the consumer segment. This segment now accounts for 25% of total assets, up by three percentage points year-to-date.
FX loans were 35% of our total net loans, flat year-to-date despite TL weakness due to the solid TL loan growth. Our securities stood at 21% of our assets with strategic positioning, which I will discuss further in a few minutes. Our balanced and prudent asset allocation, leverage of 8.4x, and robust capital adequacy ratio of 19.4% will continue to drive sustainable long-term shareholder value. On this slide, you may find further details to our 19% year-to-date TL loan growth. The highest year-to-date percentage growth was in consumer loans at 33%, and we gained 140 basis points market share, reaching 7.8%. By the way, year-to-date market share gains in the consumer segment were across the board.
140 bps specifically in general purpose consumer loans, 110 basis points in mortgages, and 50 bps in autos. As for TL business banking, following the heavy redemptions of first half, we accelerated our growth in third quarter and also gained quarter-on-quarter 60 bps market share. We reached 13% year-to-date growth in business banking on track for our full year mid-teens guidance. Also, on the right side of the slide, you can see the breakdown of the quarterly TL loan growth performance. As you know, digital transformation has been one of the top strategic priorities at Akbank. 82% of our general purpose consumer loans and 57% of our credit cards are sold through our digital channels. High ratios of mobile use by customers had to be met with corresponding high-level decision automation at our end.
With the help of automated decisions in consumer lending, we are close to 100% automation, and we were able to respond to the customer's rising needs within seconds. The loan decision automations are made exclusively by Akbank's decision system without any human intervention. Generally, the level of automation is a strong indication of the excellence in consumer credit decision systems. Automation levels above 90%-95% requires robust scorecards, reliable data structure, and real-time analytical insight on customer behavior. The level of decision automation provides us with a method for testing new credit rules and policies with historical big data, ability to measure risk taken, and carry out what-if scenarios in order to come up with new advanced rule set, which aims to maximize profit while managing risks.
To put things into perspective, in this slide, we have shared our market share and balances for consumer loans and its main component, general purpose consumer loans, since 2019, which is when our digital transformation and risk management picked up pace. Also, you can clearly see here, due to our delevered book, we are coming from a very low base. To sum up, we are using digital capabilities not only to enhance customer experience, but equally to manage risk. Our efforts have paid off with decent market share gains, which will be supportive for NII evolution going forward. Our net FX loans remained almost unchanged at $12.3 billion versus end of last year, and also versus last quarter, totally in line with our full year guidance. We still observe muted demand for investment loans.
Given volatile currency environment, we do not expect imminent change in this trend. Our total securities book was up by 23% year to date at TRY 125 billion. On the TL side, share of CPI linkers and floating rate reached 80%, underlining our proactive and strategic securities strategy. Year to date increase in TL securities mostly took place in CPI linkers, which are now 66% of total. We further added almost TRY 10 billion to our portfolio in our CPI linkers portfolio in third quarter at real yields above 3%. We updated our October to October CPI valuation for nine months to 17% from first half of 14%. We expect further positive impact from CPI linkers portfolio in the fourth quarter since CPI for the full year is expected to be above 19%.
In terms of sensitivity, every 1% CPI has around TRY 326 million net income and 6 bps NIM and 50 bps ROE impact. Across all securities portfolio, we improved spreads visibly, hence considerable NIM contribution is expected in the coming quarters. Our foreign currency securities balance stayed flat year to date, but spreads improved. With prevailing low foreign currency funding costs, this portfolio should also continue to be supportive to our NIM. Our focus remains on well-diversified and disciplined funding mix as deposits continue to be our main source of funding with 59% share. Our total deposits were up by 19% year- to- date to TRY 350 billion Turkish liras. Demand deposits were also up by a solid 21% year- to- date, increasing its share to 32% in total.
The increase in sticky and low-cost deposits, such as retail in consumer and SME, was also eye-catching at 30% year-to-date, reaching 71% of our total TL deposits. Another highlight of the quarter was the improvement in the TL LDR by almost 10 percentage points quarter-on-quarter to 139%. The year-to-date improvement was even more pronounced with 14 percentage points. Our solid FX liquidity and with an FX LDR of 49% remains as one of our strong muscles. As a result, our total LDR ended the quarter at a low level of 93%, still below sector's 98%. We maintain a well-established and balanced wholesale funding profile along with robust foreign currency liquidity. Our third quarter average foreign currency LCR was solid at 306%.
Our foreign currency liquidity buffer was noteworthy at $13 billion versus our next 12 months rollovers at $2.2 billion. Of this $2.2 billion, we already paid around $800 million in equivalent in syndicated loan by successfully rolling over $700 million portion in October. Details regarding the syndication were announced last week. Still I'd like to share a few highlights. First of all, demand was solid at $900 million from 36 banks across 20 countries. However, due to our solid FX liquidity as well as to maintain optimal cost of foreign currency funding, we renewed $700 million. Second, we were able to improve cost by 35 bps and 50 bps both for our U.S. dollar and euro tranches compared to the latest two transactions respectively. Lastly, it was again ESG linked.
Similar to our first quarter, actually, our first ESG-linked syndication in April, and the respective KPIs are also on this slide. To sum up, we have prioritized sustainable funding this year, taking its share in the wholesale to over 40% versus our initially announced year-end target of 30%. Due to our ample FX liquidity and low FX loan demand, we will continue to be opportunistic in our borrowing strategies, prioritizing sustainable funding while extending the overall maturity. Let's move on to the P&L in detail. Our quarterly self-adjusted NIM was up by 38 basis points quarter-on-quarter to 3.11%. For the quarterly performance, significantly higher swap costs was more than offset with higher CPI linker contribution. Asset repricing also supported core NIM during the quarter.
To put it in numbers, our average short-term and long-term swap utilization was around TRY 59 billion, up by around TRY 9 billion quarter-on-quarter, led by higher short-term swap utilization. Swap rates also increased quarter-on-quarter. Both higher utilization and higher rates resulted in almost TRY 2.5 billion swap costs, leading to a 31 bps quarter-on-quarter negative impact on NIM. Meanwhile, the revised October to October inflation valuation for the CPI linkers to 17% led to 62 basis points quarter-on-quarter positive contribution, offsetting the negative impact of the increased swap costs. That said, looking at the recent realization, the upside risk for October to October inflation is still evident, and every 1% CPI will have around six basis points NIM impact. Gradual declining funding costs will support NIM in the coming quarters.
Having said this, our NIM will close the year below our initial guidance at low 3% levels due to the higher than expected funding costs throughout the year and worsening inflation outlook. Which is in line with our full year NIM indication that we had shared during the second half results. Our fees and commissions were up by a solid 25% year-over-year at TRY 4.334 billion, well ahead of our full year guidance. As you can see on this slide, there are many businesses, that positively contributed to the revenue base. The increase in payment system performance was eye-catching, up by 58% year-over-year, related with both volume and interest rates in acquiring and issuing. Bank insurance continued a strong performance, up 52% year-over-year as a result of new product launches and increase of digital premiums.
There was significant contribution from digital bank insurance sales, which were up 75% year-on-year as more products are migrated to digital platform. Money transfer fees were up by 40% driven by strong volume growth. Also, our wealth management business continues to grow and support our revenue base with new ESG and tech-focused funds as well as new digital features. To sum up, our nine-month fee performance indicates a clear beat to our full year guidance of high teens. We continue to leverage our digital capabilities with our six million active digital customers. Some of the key features regarding interaction and financial engagement can be found on this slide, all of which reflect the drastic improvement in our digital channels. To name a few, monthly mobile app logins increased by 31% since the beginning of 2020.
More importantly, our mobile net promoter score has improved by 11 percentage points during the same period. Our active mobile customers not only visited Akbank Mobile almost every day, but also engaged in financial transactions, which increased by 41% year-on-year. Value driven from each interaction and engagement also picked up remarkably. Though early days, digital onboarding's initial results are also promising. Since it was enacted in May, 13% of the new-to-bank customers have been acquired via digital onboarding. So far the trend has been actually improving. As of September only, acquisition of new-to-bank customers via digital channels doubled from the previous monthly average. This continues to be a potential major customer acquisition channel for the bank. Also worth to note that the cross-sell digital customers is twice of non-digital. Effective cost management is our strong muscle.
We have a low cost base which gives the bank a lot of flexibility. Still, we continue to look line by line for expense control. Our reported OpEx was up only 13% year-on-year, even with currency volatility. For the full year, despite elevated inflation outlook, we are on track for the mid-teens OpEx growth, mainly driven by our continued marketing efforts and in line with our growth strategy. We expect our low-cost base and solid revenue generation to be a supportive factor of our best-in-class cost-to-income ratio. Our cost-income calculation excludes foreign currency gains and also from our long FX position, that was for LYY and also our hedges for our provisions on the FX side. We will continue with our disciplined cost management approach while investing in our future. Now on to asset quality.
The key highlight of the quarter was reclassification of a TL commercial loan and as a result of 30% risk reduction over the last two years. This loan has been in Stage 2 since first quarter of 2018, and due to the continued risk reduction, is now classified as Stage 1 . Accordingly, our Stage 2 loans have declined to 9.6% of total gross loans. Also, our stage three loans further declined to 5.2%. We had only TRY 22 million write-off during the quarter, which had a negligible NPL impact. On a very positive note, collection performance continues to be robust. Another key highlight is the ending of staging forbearances effective October 1.
If all of our 90-280-day files in Stage 2 were to be booked as NPL, the impact will be 45 bps. Looking at the past trends, we expect around 1/3 of these to become NPL. Also, due to our prudent coverage policy, there will be limited P&L impact. Adding all together, we remain confident in our less than 6% NPL guidance for the year. On this slide, we provided details regarding our deferred loan portfolio. Please recall that loan deferral schemes for consumer loans has not been extended beyond September, whereas the scheme for business banking loans had already ended. Hence, we continue to support our customers in third quarter while maintaining credit discipline and balance sheet strength. From now on, we will see a more pronounced decline in this bucket as the loans are maturing.
Total deferred risk principal amount to date has reached TRY 36 billion, but the outstanding risk has come down to TRY 20 billion at the end of nine months. Outstanding deferred loans account for 6% of our gross loans, while total coverage was at 8%, up by around 1% year-to-date. It is also comforting that 82% of the deferred loans had matured installments, and the repayment performance continues to be very strong. Also, NPL migration of these loans have remained consistently low, resulting in only TRY 800 million NPL balance by the end of September. Despite the BRSA staging forbearances, we did not deviate from IFRS finance, as in the past, and booked necessary provisions for potentially problematic assets even before classifying them into Stage 2 or Stage 3.
As I just mentioned in the previous slide, due to significant risk reduction and the classification of the TL commercial loan from stage two to stage one, this has led to a provision reversal. Therefore, our net provision charges for the quarter was only TRY 14 million, lowest quarterly since IFRS 9 implementation, which started at the beginning of 2018. Other factors that feed into this performance were our delevered loan book, prudent reserve build, with our total provisions reaching TRY 18 billion, and better collection performance from both retail and corporate and commercial customer base. As a result, our total coverage was at 5.4%, which excludes our TRY 1.15 billion fee provisions as additional buffer.
Our nine-month cost of credit, including currency impact, stands at 52 bps, clear indication of strong beat to our full year guidance. If there were no reversals from the TL commercial loan, our cumulative net cost of credit would have remained at 80 bps around the first half levels, actually, and it would have still been a clear beat to our full year guidance. The lower level of net provision charges provides substantial offset to the NII headwind. Our LYY risk, loan risk was hedged last year in third quarter, as you all know, and therefore the mark-to-market adjustments is offset at the trading line, and it is not included in our cost of credit calculation, as you know. You may find all the provision charges, trading income and hedge details in our appendix. Now on to our bank's distinctive sign of strength, our capital position.
Our solvency ratios remain well above regulatory limits at 19.4% total capital and 15.5% Tier 1 and Core Equity Tier 1, which all exclude forbearances. Due to our solid growth performance and also increase of risk weighting for general purpose consumer loans and consumer credit cards by the BRSA during the quarter, our CAR declined by 60 basis points quarter-on-quarter. Meanwhile, our internal capital generation was eye-catching and uplifted our capital by 73 basis points in third quarter. All in all, our excess total capital stood at TRY 32.3 billion, while excess Core Equity Tier 1 further advanced to TRY 30.6 billion, according to Basel III minimum requirements without forbearances. Our solid capital buffer serves as a shield against unprecedented challenges and volatility and also creates ammunition for sustainable profitable growth.
Moving on to another focal area in our bank's strategy, I'd like to mention some key highlights of the ESG in the third quarter. As some of you know, we announced our sustainability strategy this year, becoming the first deposit bank in Turkey to disclose quantitative targets of sustainable finance on both sides of the balance sheet. As of third quarter, it is reassuring to see that we have made significant progress in a diversity of areas in sustainability. We are well on track for our long-term targets for sustainable finance and climate change. In the third quarter, we provided above TRY 6 billion sustainable finance, while year-to-date total reached TRY 20 billion. In parallel with our increased focus on providing sustainable finance, we completed two pioneering sustainability-linked funding transactions.
The first sustainability-linked repo transaction in CEEMEA amounting to $300 million, and the first Turkish deposit bank to secure funds from AIIB, and $100 million proceeds will be used to support SMEs fighting the adverse effects of the pandemic. We have also further diversified our product base on both sides of the balance sheet this quarter to better address shifting sustainability-related needs for our customers. On the impact investing side, we issued the first domestic retail social bond amounting to TRY 340 million. Of course, this transaction was in line with our sustainable finance framework. Also in this area, AUM of ESG theme funds launched by Ak Asset Management reached TRY 850 million as of nine months.
We have also introduced a new product transition to low carbon economy to help companies make the necessary investments in reducing their carbon footprints. In addition to sustainable finance, we also supported our ecosystem and communities to achieve a more inclusive future for the next generation. Akbank Youth Academy, which aims to leverage the sources of, and the capabilities of the bank, provided training for 29,000 students year-to-date. The academy also held programs for improving gender diversity, such as addressing gender balance in technology roles. In the third quarter, we also completed Akbank LAB's Sustainable Finance for the Future program. This program trained and supported young innovators to provide solutions for challenges of sustainable finance and financial inclusion. To address these long-term nature of challenges related to climate change and social inclusion, we're also working on ways to further enhance our governance structure.
As a key milestone for our non-financial disclosures, we published our first integrated report, whereby 36 non-financial indicators were assured by a third party. We also published our supplier code of conduct. We will continue with our efforts across the bank to combat climate crisis and create meaningful change for our communities. To sum up, we have again navigated through a volatile year, maintaining our financial strength and operational resilience. On this slide, you may find a summary of our nine-month performance versus full year guidance. Starting with TL loan growth, the sound performance in both consumer and business segments, we expect to end the year better than the full year 20% guidance. As shared earlier, higher than expected funding costs through the year and worsening inflation outlook pressured NIM beyond our initial expectations.
Accordingly, our NIM will close the year below our initially guided level with around 50 bps deviation at low 3% levels. This is exactly in line as we had shared in the first half results. Net cost of credit evolution proves to be significantly better than our initial expectation of 200 bps, indicating that we could end the year somewhere between 50 to 100 bps. Therefore, better than guided performance and cost of credit fully offsets the RE impact of the NII miss. Also adding our robust performance and fees so far, we have already delivered our mid-teens full year RE guidance. This ends our presentation. Thank you for listening. Let's move on to the Q&A. You may raise your hand or type in the
Basically send us type in the Q&A box or actually send an email if you're not joining, basically if you're joining us by phone, to investor.relations@akbank.com. İlknur, would you like to ask the first question?
Ebru, among participants, I saw the Deeksha Gupta was raising a hand. Okay. Now our first question is coming from Gabor Kemeny. I'm allowing him to talk, okay? Hi, Gabor.
Hello. Thanks for the presentation. First question is on provisioning and very solid performance in the first quarter. Did I catch you correctly that you were mentioning an 880 basis point provisioning for the third quarter, excluding the provision release? If you could please comment on the outlook here. The other question is on the impact of the recent interest rate cuts. Can you comment on how this impacts your pricing? I mean, to what extent have you reflected this in loan pricing and deposit pricing? If you could comment on whether you have seen any dollarization on the back of the interest rate cuts. Thank you.
Hi, Gabor, this is Türker. To start with your first question, with regards to provisioning. Yes, actually, your understanding is correct. If we would have, we wouldn't have had that one-off reversal impact, actually, our nine-month cumulative cost of credits would be at a similar level, like at then, at the end of the first half, so at around 80 basis points levels. With regard to the outlook, actually, strong trend is continuing in the fourth quarter as well. Therefore, since we don't expect such a major big off in the coming period, so we can take 50 bps to the range of 50 basic points- 100 basis points rate as a proxy for the coming periods.
By the way, we are surely in the budgeting process for next year, but again, this can be taken as a proxy, as normalized levels, for the coming periods. With regard to the latest rate cuts, actually, of the central bank, the one in September and the latest one last week, totaling seven basis points. Actually we see a major impact on the funding side, first of all. These rate cuts will positively impact our funding costs going forward, led by the wholesale funding, which is repo and swap funding, as well as our deposit cost. So far,
The reflection into the deposit prices was slightly lower than 300 basis points, so at around 200 basis points. For instance, for big tickets before the rate cuts in September, we were paying up to 19%. Currently, big tickets are priced at maximum 17%. On a blended basis, for the portfolio on blended basis, we see a material easing in the front book. This evolution will surely positively impact our net interest margin going forward. On the asset side, mainly short-term products. The price for short-term products up to six months have come down materially, similar to the rate cut levels.
For longer maturities, the reflection was rather limited. Again, you know, these are very early days and too, a lot of things are moving in the market. As you may know, yesterday there was also an announcement by state banks. We'll see actually, how the market will settle and what, how the competition will look like with regards to asset pricing. With regards to dollarization, actually, latest rate cuts, it didn't have any material impact on the dollarization in the system. When you look at the BRSA figures, these are coming with one week lag. So far, the dollarization level was similar to the third quarter end.
When I look at our own bank, actually, again, we haven't seen a major change, but in our customers.
Thank you, Türker. Very useful. Just a small follow-up. As I understand, you would expect a positive overall impact on your customer spreads, potentially significantly positive from the rate cuts overall?
Exactly, Gabor. It's still mainly led by deposit side. We are seeing the positive contribution actually recently into deposit side. Yes, that will surely be impacting positively our net interest margin going forward.
Understood. Thanks very much.
For sure, Gabor, so also the upcoming MPC meeting decisions will be important for the NIM evolution going forward. When you look at the press release of the central bank after latest MPC meeting actually, probably there is rather a limited room until year-end for further rate cuts, but we'll see.
That is all clear. Thanks.
You're welcome.
The next question is coming from Simon Nellis. Hi, Simon, the floor is yours.
Hi, everyone. Thanks a lot for the call. Hi everyone. Hope you can hear me.
Yes.
Yeah. Thanks very much. Actually, Gabor asked most of my questions, but I still have one on fee income. The question is actually more about next year. I know you're still in your budgeting and planning, but can you kind of give us an idea of how fee growth will trend into next year? Because I think part of the high growth is driven by the high rates, and as they come down, that will have an impact on your payment fees. Thanks.
Yeah. Simon, thank you very much. Yes, this year actually, we've seen a significant contribution from payment systems, led by volume growth as well as interest rates. Surely next year's interest rates evolution trends may have an impact on the fee contribution from payment systems. You know, we wanna grow. Actually, this is our main target for the coming period. Also, not to forget, this year in the volumes actually payment systems volumes on payment system side was relatively moderate in the first half of the year because of COVID restrictions. The volumes have increased in the second half.
Therefore, actually, yes, next year rates may come down, but I think the volumes will continue to increase. Therefore, I think it will offset that rate impact. But with regard to overall fee growth guidance, maybe we should wait a little bit.
Okay.
Surely we will aim again a significant fee income growth for this year, for next year with the help of our growth ambition.
Yeah. Okay. Thanks very much. Bye.
Okay. The next question is coming from Cihan Saroglu. Hi, Cihan. Cihan? You're unmuted now. Okay.
Hi, Cihan
Cihan? There's something wrong, I believe.
Maybe Cihan, you can send your question via chat.
Yes, you can write it in the Q&A, Cihan.
Yeah.
If you have a question, it's no problem.
Okay. I'll continue with the written questions. One question is coming from, you know, Suran Juran. Sensitivity of capital increase ratio to the HD, TY levels.
İlknur, was the question with regard to currency sensitivity?
Yeah, currency sensitivity. Correct, yes.
Yes. Actually, as you are sharing on the screen actually, 10% TRY depreciation impacts by roughly 60 basis points. That's actually the most significant sensitivity actually compared to NPL and interest rates.
Okay.
Maybe I can just add one thing. Obviously this is not linear, and it's also worth noting that over the last few years, as you know, the bank has been able to improve its capital ratios despite the currency depreciation, because the bank takes necessary actions in terms of its overall balance sheet management. Also, obviously, internal capital generation, which we saw this quarter being 71 basis points, but it's usually, let's say, anything above 50 basis points on a quarterly basis, also helps to offset that. One last thing, obviously there is a Tier 2 that also works as a hedge for the balance sheet, as well.
Okay. Cihan asked via our question Q&A box. Hi, why are consumer loan link fees up only 14%, whereas your consumer loans have grown significantly?
Actually, there are, as you know, restrictions on the consumer loan fees. The legislation changed actually last year in the first quarter, actually. There's also some base effects. That's actually the main reason.
Okay. The question, you were eager to grow year- to- date. After recent rate cut, would you still consider growing loan book at the same pace?
Actually, our ambition is to grow, surely. We have to see actually how the competition also will look like in the coming period, you know. It's really too early days, you know, the announcement of central state banks of yesterday, how it will impact the competition in the market. Yes, our ambition to grow is still there. Actually, in the first nine months of the year, actually, we have actually performed better than our guidance. Also fourth quarter so far, again, we keep the strong trend in strong growth trends.
Okay. Another question regarding asset quality. Do you expect any asset quality deterioration given recent Turkish lira weakness?
Actually, no. As you know, there has been quite deleveraging in the FX loan book of Turkish banks in the system. Also versus three to four years ago, our FX loans were amounting to $18 billion levels. Now it's amounted to $12 billion levels. Also when you look at the short FX position of non-financials in Turkey, short FX position was amounting to roughly $190 billion levels three years ago. Now it is down to roughly $130 billion levels. A reduction by around 1/3 . Also when you look at the composition, short-term portion of the FX position of non-financials is actually positive, roughly positive by $50 billion.
Also, when you look at the FX deposits composition in the banking system, so this year, so far, corporate commercials have increased their FX deposits. Maybe it was also again an action they have taken for hedging their FX liabilities. We don't expect such a sensitivity on our asset quality, a negative impact on our asset quality.
Okay. The next question comes from our written questions. What are the drivers of trading line? You have significant swap loss, yet the total trading loss was much lower. What are the contributors? Can you elaborate on that?
Actually, this is mainly customer business. You know, also the volatility is also impacting this line. This is actually driven by derivatives, interest income, and FX income, mainly led by customer business.
Also maybe it's worth to highlight that if you look at it on a Q-on-Q basis, it's actually at very, I mean, the clean, because we share here LYY, ECL and other.
You can see here the clean, you know, trading, basically line is actually very similar to second quarter levels.
Yes. Q-on-Q flattish you can say.
Yeah.
Okay. The following question. Can you please talk a bit about the exposure that was transferred from Stage 2 to Stage 1?
Actually, it was a big commercial exposure we had. After restructuring of that exposure, it had been classified into Stage 2 three years ago. Since that time, actually, we've seen a sizable risk reduction in this exposure by more than 30% risk reduction we've seen, which continues down payments. Per BRSA and IFRS rules, actually, you know them very well, we had to classify it back to into stage one. Therefore, actually, it has positively impacted this. It had a major impact on this provision reversal.
Okay. We don't have any other questions at the moment.
Okay, then. Well, thank you, everyone for joining us today. We're always here to help if you have any follow-up questions following the call. Hopefully, I keep on saying this, but hopefully next time we meet in person.
Thank you very much.